Certified Valuation Analyst CVA Discounts, Premiums, and Adjustments

Question 1

Which of the following best describes the Discount for Lack of Marketability (DLOM)?

Accepted Answer

A reduction in value applied to an interest that cannot be quickly sold at a reasonable price

Answer

DLOM reflects the reduced value of an ownership interest that lacks a ready market, making it difficult to sell quickly at a fair price.

Question 2

A minority interest discount is applied primarily because minority shareholders lack:

Accepted Answer

The ability to control business decisions such as distributions and asset sales

Answer

Minority shareholders cannot unilaterally control key business decisions, which reduces the value of their interest relative to a controlling interest.

Question 3

The control premium is best defined as:

Accepted Answer

The additional value an investor pays to obtain a controlling interest over a business

Answer

A control premium represents the extra value a buyer is willing to pay to gain the ability to control business operations, distributions, and strategic decisions.

Question 4

Which method is most commonly used to quantify the Discount for Lack of Marketability using empirical data?

Accepted Answer

Restricted stock studies and pre-IPO studies

Answer

Restricted stock studies and pre-IPO studies compare transactions of marketable versus non-marketable interests to empirically estimate DLOM.

Question 5

When moving from a controlling interest value to a minority, non-marketable interest value, the analyst typically applies adjustments in which order?

Accepted Answer

Minority interest discount first, then DLOM

Answer

The standard sequence is to first apply the minority interest discount (moving from control to minority) and then apply DLOM (moving from marketable to non-marketable).

Certified Valuation Analyst Practice Test

Certified Valuation Analyst Practice Test

Certified Valuation Analyst CVA Discounts, Premiums, and Adjustments